U.S. states saw their tax revenue drop by about $31 billion, or 6 percent, from March through August, compared to the same period a year earlier, as the pandemic triggered economic shutdowns across the country, according to data from 44 states compiled by the Urban Institute.
The scale of the drop appears smaller than expected, relative to the depth of the economic contraction, and comes after several states have reported that their revenue didn’t decline as much as anticipated despite business shutdowns and increased unemployment. In August, when much of the country was reopening, state revenue climbed about 1.1 percent from a year earlier, the Urban Institute found.
As state finances across America are upended by the coronavirus, almost all of them face the same, self-imposed, problem: how to balance their budgets.
Jimmy O’Reilly is a senior associate at Novarica. Prior to joining the firm, Jimmy worked in financial planning and wealth management. He has a BA in Economics and a Creative Writing Certificate from Wesleyan University. He can be reached directly at joreilly@novarica.com.
Paul Legutko is Vice President of Digital Marketing and Analytics at Novarica. Paul has 20 years of experience in research and analysis, specializing in designing and applying analytical solutions to a wide range of data sets and problems. After nine years in digital analytics consulting, Paul spent five years as a senior manager at Ernst & Young, focused on activating customer data within marketing and business strategy contexts. Prior to joining Novarica, Paul led Business Intelligence at Hill Holliday. Paul holds a PhD from the University of Michigan and a BA from Harvard University. He can be reached directly at plegutko@novarica.com.
The tax figures come as Republicans in Washington balk at extending aid to states and cities to help cover budget deficits that are expected to continue as the coronavirus weighs on the economy. Experts say that states’ financial outlooks could worsen as the effects of the stimulus bill fade and high unemployment reduces tax bills next year.
The August increase should be viewed with caution since income-tax deadlines were pushed back to July, which could have resulted in some revenue being processed later, according to Lucy Dadayan, senior research associate with the Urban-Brookings Tax Policy Center at the Urban Institute. Personal income-tax collections, which rose 3.8 percent in August, were in some cases supported by backlogged unemployment insurance benefits subject to withholding tax, Dadayan said.
Between March and August, tax revenues fell 6.4 percent year over year, with 36 states reporting declines over that period, the report said. Between March and August, eight states, including Washington and Georgia, reported growth in tax revenue.
“Due to the shifting in timing of tax receipts this past year, it is crucial to view August year-over-year revenue gains and fiscal year to date data with caution,” Dadayan said in the report.